This invention relates to a system for processing commercial transactions by means of a card issued by a financial institution, and in particular to such a system that uses a prepaid microchip card in which balance information is recorded.
The invention is typically, but not exclusively, applicable to transactions, such as purchase transaction, at a retail establishment such as a department store, supermarket or smaller retail store.
Cards are widely used to effect many kinds of commercial transactions. The type of card most commonly used is the credit card, which identifies the bearer by means of his signature and allows him to make purchases on credit up to a certain limit amount. Although credit card systems have proven extremely convenient, they are not free from abuse: by making many purchases in different places a card user can spend many times the credit limit and exceed his ability to repay when billed later; by generating false transaction records a store can charge card users for purchases not actually made. Another problem is the extensive postprocessing involved: the vendor in a credit-card transaction must submit individual records of the transaction to obtain reimbursement from the financial institution that issued the card.
Recently another type of card, called a prepaid card or debit card, has come into use. A prepaid card differs from a credit card in that a monetary balance is recorded in the card. To acquire the card, the user pays an amount of cash equivalent to the initial balance. Thereafter, each time a transaction is paid for with the card, the balance recorded in the card is reduced by the amount of the transaction. Prepaid cards are used in Japan by the Nippon Telephone and Telegraph Corporation (NTT) and the Japanese Railways. In both of these systems the balance information is recorded in the card by magnetic means.
Although these prepaid cards eliminate the problem of overspending by the customer, they have other drawbacks. One is their noninterchangeability: telephone cards can be used only in public telephones; railway cards can be used only in railway ticket vending machines. Another problem is that when the balance in the card is reduced to zero, the utility of the card is exhausted and the user must acquire a new card.
Recent progress in semiconductor technology now makes it possible to produce much more sophisticated cards, having embedded microchip semiconductor devices such as microprocessors and memories. Since they can store large amounts of information and can process the information, such microchip cards (also called IC cards) offer many advantages over conventional cards that record data by magnetic means. These advantages can be put to use in prepaid card systems.
In one prepaid microchip card system that has been proposed, the card's memory contains a balance that can be both increased and reduced. Unlike a magnetic card, such a microchip card would not become used up: after spending the balance in it, the user could recharge the card by transferring funds into it from a bank account via an automatic teller terminal. The card could also be provided with a password for preventing unauthorized use.
Like a credit card, such a prepaid microchip card could pay for transactions at a variety of different commercial establishments. It could be used at any establishment equipped with a cash-register terminal capable of debiting the balance in the card. Also as in a credit-card system, however, the vendor in the transaction would have to be reimbursed through later postprocessing. The vendor would have to submit records of the transaction to the financial institution that issued the card, a process involving much work and presenting opportunities for fraudulent manipulation. Such opportunities include both fraudulent alteration of the transaction records on the paper, flexible-disk, or other media on which they are kept, and fraudulent input to the vendor's terminal controller.